House prices suffer double-digit fall

House prices: Falling at fatest rate since the 1990s. Photograph: Danny Lawson

House prices continued to fall in August, recording a double digit year-on-year fall for the first time since the 1990s.

According to Nationwide, the price of a typical house has fallen by 10.5% over the past 12 months to £164,654. This is the fastest rate of decline since 1990.

Prices fell by 1.9% in August, more than the 1.5% fall recorded in July, and Fionnuala Earley, Nationwide's chief economist, said activity in the property market would continue to be subdued.

"While the pace of monthly falls picked up during the month, the less volatile three month on three month measure, eased very slightly in August to 4.5% from 4.6% in July," she said.

The housing market has slowed down massively over the past year, with mortgage approvals plummeting 65% from this time last year.

Earley said house builders have been suffering with fewer new-build reservations despite greater use of sales incentives.

"House builders reporting a lack of confidence in the market is the biggest reason behind the drop-off in demand, although changes in lending criteria are also reported to be an issue," she said.

"Estate agents data across all property types is a little more optimistic and suggests there are glimmers of interest returning to the market," she said, but added this hasn't translated into sales yet.

She said supply of properties outstrips demand at the moment, which is likely to restrain house price growth in the short term.

Borrowers seek stability

Nationwide also said there had been a marked change away from the short-term, two-year rate-driven mortgage borrowing of recent years. It said borrowers are turning to longer fixed-rate mortgages for peace of mind, despite the fact tracker rates have been cheaper than fixed rates since October 2007.

The number of borrowers choosing five or 10-year fixed rates has increased from around 20% at the start of the year to 39% and 47% respectively.

"There are benefits to borrowers taking out longer term fixed-rate loans as they insulate them from unexpected changes in interest rates," Earley said.

Other borrowers are finding themselves squeezed out of the mortgage market. In a separate report released today, Moneyfacts said people with a history of credit problems are struggling to remortgage, with many forced to stay on their lender's higher standard variable rates.

It showed how the sub-prime market had contracted over the past 12 months, with just 1,252 loans available to these borrowers today compared to 8,148 before the credit crunch.

Darren Cook, mortgage expert at Moneyfacts, said: "As a result of the much publicised difficulties in funding this type of lending, the number of lenders offering such products has dropped from 36 in July 2007, to just 13 today."

Sub-prime borrowers are paying a high premium for their riskier lending profile because the rates that borrowers are paying for these mortgages have risen 2.75% from this time last year.